The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $160,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years:
Year 1......... $70,000
Year 2.........85,000
Year 3.........42,000
Year 4.........40,000
The firm is in a 35 percent tax bracket and has an 8 percent cost of capital. Should it purchase the asset? Use the net present value method.